Indifference pricing of pure endowments via BSDEs under partial information
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Publication:5140641
DOI10.1080/03461238.2020.1790030zbMATH Open1454.91171arXiv1804.00223OpenAlexW3040785838MaRDI QIDQ5140641FDOQ5140641
Authors: Claudia Ceci, Katia Colaneri, Alessandra Cretarola 
Publication date: 16 December 2020
Published in: Scandinavian Actuarial Journal (Search for Journal in Brave)
Abstract: In this paper we investigate the pricing problem of a pure endowment contract when the insurer has a limited information on the mortality intensity of the policyholder. The payoff of this kind of policies depends on the residual life time of the insured as well as the trend of a portfolio traded in the financial market, where investments in a riskless asset, a risky asset and a longevity bond are allowed. We propose a modeling framework that takes into account mutual dependence between the financial and the insurance markets via an observable stochastic process, which affects the risky asset and the mortality index dynamics. Since the market is incomplete due to the presence of basis risk, in alternative to arbitrage pricing we use expected utility maximization under exponential preferences as evaluation approach, which leads to the so-called indifference price. Under partial information this methodology requires filtering techniques that can reduce the original control problem to an equivalent problem in complete information. Using stochastic dynamics techniques, we characterize the indifference price of the insurance derivative via the solutions of suitable backward stochastic differential equations.
Full work available at URL: https://arxiv.org/abs/1804.00223
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Actuarial mathematics (91G05) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)
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